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Mr President, I move that the Appropriation Bill 2013 be read a second time. I shall not spend a lot of time today describing the state of the world economy. Hong Kong people are every bit as familiar as I am with the situation in the US, the European Union, the mainland and elsewhere. Suffice to say we shall, as usual, face many challenges, but I am confident that we shall ride out the storms that come our way.

I wish instead to focus on the big picture. The two biggest challenges facing our community today are property prices and providing a reasonable standard of living for the elderly.

Our chief executive has already spelled out in detail the steps he proposes to take to address the former problem by boosting land supply, building additional public rental and Home Ownership Scheme flats, and reining in the excessive speculation in the property market. These measures have my total support.

There will be no tax concessions or other giveaways in my speech today. Hong Kong people are already among the most lightly taxed in the world. They should continue to enjoy their good fortune gracefully. Nor will I be giving further rent holidays to residents of our public housing estates. These tenants are already the most heavily subsidised members of our community.

My proposal is this. With effect from January 1, 2015, every Hong Kong citizen aged 70 or above will be entitled as of right to enjoy a pension paid by a new statutory body to be set up for the purpose. It will replace all our present assistance for the target group.

I recognise that the task will not be easy and much still needs to be thrashed out. But I am clear about some of the key points. First, it must be truly universal, that is, everyone must pay in and everyone must be able to draw out.

Secondly, in the long term, the majority of the funds must come from working people and their employers.

Government funds are needed for the scheme because provision needs to be made for housewives, students, the unemployed and so on. There will be a particular need for government support in the early years. Hence, this year's surplus of HK$60 billion will be set aside as the first instalment of the government's contribution to the scheme.

I shall also be taking a hard look at the present level of our fiscal reserves, including those sums deposited with the Monetary Authority, to see what further contributions the government might be able to make. There has been much talk about what the appropriate level of reserves should be. I don't think we need a complicated formula. A common sense rule of thumb says an amount equivalent to 12 months' recurrent expenditure is a prudent minimum, while 24 months would be excessively cautious.

Going forward, I shall also be taking a hard look at the present practice of allocating all land revenue to the Capital Works Reserve Fund. It is good practice to meet the costs of capital expenditure from current income so as not to burden future generations with debt. But with most of our physical infrastructure already paid for, there would seem to be a case for allowing at least some of the revenue to come across to the recurrent side.

A lot of hard work lies ahead, to decide what to do about those already in retirement schemes and so on. One thing I can say now is that the Mandatory Provident Fund must be scrapped and absorbed into the new scheme. The MPF, as structured, has failed and I would like to take this opportunity to apologise to the people of Hong Kong for having introduced it.

Thank you, Mr President.

Mike Rowse is the search director of Stanton Chase International and an adjunct professor at the Chinese University of Hong Kong. mike@rowse.com.hk

This article appeared in the South China Morning Post print edition as: